May Numbers Down, Airlines Pleased as Punch

Our passenger numbers are in for May and they show that we were down four percent for the month and four percent year-to-date. Here’s how the numbers breakdown, showing a month to month comparison:

May 2009: 81,496 total passengers

May 2110: 67,609 total passengers

Take a look at how the individual airlines did during May 2010, compared to May 2009:

Delta: - 27%

United: - 17%

Allegiant: -10%

American: -15%

On the surface these negative numbers seem lousy—especially when compared to last May when the airport’s total passenger numbers were up 17 percent. The numbers seem lousy, but they really aren’t. That’s because this year the airlines are making money. Last year they were losing money. In the jargon of the business, “yields” have improved. Here’s how yields work… Suppose you’re an airline with a jet that holds 50 people. Would you rather sell 50 seats at $100 a piece, or 30 seats for $200 a piece? You do the math:

50 seats sold for $100 = $5000

30 seats sold for $200 = $6000

The dollar amounts used here are hypothetical, but this illustrates exactly what’s going on in Springfield right now: the airlines are selling fewer seats this year, but they’re selling them at a higher price. Let’s look at the big picture and gain some perspective… Last year, early in the first quarter, the airlines took a look at their advance bookings and nearly stroked out—advance bookings were terrible. In response, airlines cut fares across the country. At this airport, in 2009, fares were down an astounding 22.3%. Bottom line: more people were flying due to fare cuts, but the airlines were losing money hand-over-fist. It was good for customers, but bad for airlines. This year, early in the first quarter, something unexpected happened: business travel ticked up. As an American Airlines route planner told me last week, “It was like someone turned on a faucet and the business traveler was suddenly back.” The return of the business traveler, after the depths of the recession, gave the airlines the leverage they needed to start raising fares. Here’s the bullet point summary of where the airlines are right now:

Fares are up

Airlines continue to cut the number of seats in the air, thus further reducing operational costs

Fuel prices are down (compared to last year)

Airlines are giddy because they’re making money...

Here’s the take-away from all this: airports tend to get giddy when passenger numbers are up because it means more airport revenue. That’s what happened last year at our airport. The downside was that the airlines were losing money. Now, the tables are turned: the airlines are making more money and the airport is making less money. In the final analysis, airports would rather have happy airlines. An airline that’s losing money is a lot more inclined to pull up its stakes and leave the market.

Having said all that, be warned! We’ll see wild swings this year. The month of June has 59 more flights than May; all of them seasonal. This will probably cause passenger numbers to swing to the positive side. But this fall, when those seasonal flights go away, numbers will swing back the other way. It’s true for the entire industry—just two months ago the International Air Transport Association (IATA) predicted a $2.8 billion global loss for airlines this year. Last week the IATA changed its mind and predicted a $2.5 billion gain.

Don't be surprised if the entire industry swings back and forth for the duration of the recession.